1. On Defining the Economic Point of View

1 On Defining the Economic Point of View

. . . What does the economist economize? “’Tis love, ’tis love,” said the Duchess, “that makes the world go round.” “Somebody said,” whispered Alice, “that it’s done by everybody minding their own business.” “Ah well,” replied the Duchess, “it means much the same thing.” Not perhaps quite so nearly the same thing as Alice’s contemporaries thought. But if we economists mind our own business, and do that business well, we can, I believe, contribute mightily to the economizing, that is, to the full but thrifty utilization of that scarce resource Love—which we know, just as well as anybody else, to be the most precious thing in the world.

Sir Dennis H. Robertson

It is impossible to draw a clear-cut boundary around the sphere or domain of human action to be included in economic science.

Frank H. Knight

Social phenomena, like other matters of interest to be found in the real world, lend themselves to analysis by a number of disciplines. The same raw data may be capable of classification and explanation in a variety of ways, each of which complements the others and so contributes to the full grasp of the phenomena under consideration. In the interests of reaping the advantages attendant upon the division of labor, a sequence of events may be seen as reflecting the simultaneous operation of several distinct chains of cause and effect. Each of these chains may then become the focus of inquiry, and it may enhance the advantages to be derived from the division of labor to be able to set forth in precisely what ways any one such causal chain constitutes a potentially fruitful theme for separate investigation.

Such a classification of the factors in the observed phenomena that require explanation will, of course, reflect the different points of view with which the observer approaches the data. In the final analysis, the definition of a particular field of investigation is tantamount to the exposition of the point of view chosen by the investigator.

With regard to economics and to the “economic point of view,” many attempts, under a variety of guises, have been made to describe this peculiar field of investigation. Writers have defined the noun “economy”; they have expatiated on the precise demarcation of the scope of economics; they have indulged in lengthy disquisitions on the character of economic activity and on the nature of economic interpretation. They have discussed at length the relationship of the economist to the sociologist, the psychologist, the moralist, the technologist, and the jurist. And they have, in addition, engaged in heated and protracted controversies about the utility of these same definitions, disquisitions, and discussions.

They have, in short, made a large number of attempts to determine precisely the particular point of view of the economist, to dispute existing expositions of it, or to deny altogether to the economist the joy of having a distinct point of view. The sum total of this activity over the better part of two centuries is a vast and fascinating literature. The contemplation and subsequent digestion of this literature yields a series of formulations of the economic point of view that are astounding in their variety. The present essay attempts to survey the literature and to review in historical perspective this wide range of formulations. As a chapter in the history of ideas, this account of the constant search for the precise expression of the point of view of the economist focuses on the particular avenues by which it has been approached and on their remarkable heterogeneity.

Although the present account is historically oriented, we shall adopt the topical, rather than the chronological, approach. We shall not present the various formulations in the order in which they were successively proposed in the history of economic thought. Instead, we shall take up one by one the principal groups of definitions to be found in the literature and shall treat each of them separately as fully as possible. The part played by each group in the history of the problem will become apparent from the discussion of the definitions themselves. We shall discover, in fact, that at any one time a number of widely differing formulations have usually been current. It will be convenient, therefore, to devote to each of these groups of formulations a discussion of its development that will be complete in itself, without the distraction of noticing the simultaneous parallel developments of other definitions.

In this introductory chapter we shall attempt to bring our problem into perspective. It will be helpful in this connection to discuss the significance to be attached to the task of making explicit the nature of the economic point of view; to make clear which operation is, and which related operations are not, the objects of our interest; and to survey briefly the place that has been occupied in economic thought by the attempts to elucidate this economic point of view.

The Economic Point of View and the Scope of Economics

The Multitude of Economic Points of View

Economists have, for example, been well agreed among themselves that the operations of the merchant are of specific interest for the economic perspective on social phenomena; but at this point their unanimity abruptly breaks down. For some, the merchant is engaged in economic activity because he deals in material goods; for others, because his operations involve the use of money; for still others, because these operations hinge on acts of exchange. Some writers see the merchant as an economic agent because his activities are allegedly motivated by selfishness or marked by a peculiar shrewdness in calculating the pros and cons of his dealings. Others see his relevance for economics in that his wares are to some extent related to the maintenance of human life; others, in that they pertain to human “welfare.” Still others classify mercantile pursuits as economic because they involve the judicious disposition of scarce means, while others again find their economic character in their reflection of human motives that permit of measurement. And the list could be still further extended.

The disquietude to which the contemplation of such an array of criteria gives rise is deepened by the realization that in most cases each of them represents a completely different opinion concerning the function of economic analysis. Nor is our equanimity restored by observing the diversity of ways in which the problem of definition is approached. Probably the most significant differences are not those among the specific definitions arrived at, but the disagreements among writers concerning the kind of entity that they are seeking to define and the very direction in which they are to begin their search. Definitions of economic science have time and again required preliminary discussions revolving around the question whether the discipline concerned a kind of object, a kind of activity, a kind of man, or a kind of satisfaction or welfare.

The natural consequence of this state of affairs has been to stimulate frequent soul-searching among economists about the fundamental purpose of defining the economic point of view, as well as a salutary awareness of the real complexity of the problem. The fact that so many different starting points to a territory of knowledge are conceivable is a sign of the intricacy with which the purely economic must be intertwined with other phenomena. And it raises serious questions regarding the very concept of a specifically economic point of view and the usefulness of its precise formulation through rigorous definition.

The Controversy Over the Utility of Definition

As we shall discover, a number of sharply contradictory opinions have been expressed on the usefulness of undertaking the careful definition of the economic point of view or of the nature of the subject matter of economic theory. To those who have considered such a task as significant, its fulfilment represents in itself a distinct scientific achievement. On the other hand, many writers have been at pains to disassociate themselves from an undertaking whose accomplishment seems, in their opinion, to possess no scientific value in itself nor to promise any fruitful results for further work. This book will deal in some detail with many more or less careful attempts at such a definition; and it is only proper to pause to consider the question whether these attempts were potentially fruitful or were by their very character necessarily doomed to be wordy disquisitions, fertile in nothing but the stimulation of sterile controversies.

An Interpretation of the Controversy

The writers who have denied the fruitfulness of the precise delimitation of the scope of economic theory must be considered as constituting a group whose views, in effect, make up yet another “definition” of the economic point of view—one that altogether denies any such concept. The notion of a peculiarly economic point of view has been variously defined in terms of a large number of different criteria. The subsequent chapters of this essay set forth the more important of these formulations. Certainly it is of moment that there is place found for yet a further attitude towards the notion of a uniquely economic perspective—an attitude that completely fails to recognize any such unique point of view. The disagreement concerning the usefulness of defining economics is thus reducible to a far more interesting controversy: one that deals with what, in fact, is meant at all by defining economics; a controversy concerning the very existence of that economic point of view which we are asked to define.

If, however, it is maintained that economics has a nature of its own, then it may clearly seem of the highest interest to bring to light the precise character of this economic point of view. Moreover, once the existence of a given recipe has been discovered, and the conviction has been acquired that economics is not a pie to be made up at will, then definition becomes important for yet another reason. It becomes of the first moment to expose the specific character of economics, if only to convince the doubtful of the existence of this uniquely economic point of view that they are so much inclined to deny. The search for the precise nature of economic theory becomes of importance simply because it offers proof that economics has a “nature of its own.”

Definitions, as we have seen, may be either real definitions or nominal definitions. Now, a nominal definition may be given to a term even though one is convinced that no real “thing” in the world in fact corresponds to what the term signifies. But one can embark on a search for a real definition only if it is recognized that the term to be defined actually represents a thing or a concept the essence or nature of which can be set forth. If it is denied that the subject of economic theory displays any essential unity that might be worthy of precise characterization in a definition, then it is clear that any definition of the discipline must remain merely nominal. And if it is believed that economists have been arbitrary in their selection of their problems, then there can be little value in the formulation of the nominal definition of economics.

It is not difficult to understand that when writers concerning the scope of economic theory believe themselves to have discovered the “key” with which to explain all departments of economic life, they may feel pardonably complacent about the usefulness of the “definition” in which their discovery is crystallized. It is still more understandable that economists should stress the usefulness of definition when their own formulation of the nature of economics reveals to the world their awareness of a new general element in their experience. Croce provides perhaps the best example of this situation. He was aware of a new general element in his experience of human affairs. This element was not moral, it was not technical, nor did it coincide with any other already-named abstractions. In his formulations, Croce made a vigorous attempt to present this abstraction to the attention of the world by ascribing to it the word “economic.”

When definition entails, in addition, the task of analyzing this newly presented abstraction, that operation becomes more than ever meritorious. If in the effort to provide an adequate definition of economics, an attempt is made to analyze the concept of economy, for example, one necessarily becomes involved in a problem of economic science itself. It was here that Croce could most effectively criticize Pareto’s view that the cutting off of that slice of phenomena which is to constitute the field of economics is a quite simple and arbitrary affair.

When the nature of economics is defined in this way, by the analysis of a unique general element in our consciousness to which only the term “economy” corresponds, then it must seem very obvious indeed that faulty definitions can seriously distort the character of the science. And when the analysis of this element has been made possible only by virtue of familiarity with the substantive content of the science itself, then its formulation into a definition can clearly take on the character of a positive scientific contribution. It is in this sense that Hayek, in a somewhat different context, was able to write:

From this perspective it will be useful to survey rapidly in the next few pages the historical trend in the attention that economists have paid to the definition of their subject. This will make clear what they have, at various times, looked for in such a definition. Our survey will thus provide a useful introduction to the more detailed discussions in the subsequent body of the essay.

The Economists and Their Definitions: the Classical Economists

The early economists, in fact, when offering definitions of their science, were often far more earnestly concerned with expressing its true essence and nature than were many of their successors. Although the latter, as Mill asserted, may have been better equipped for this task, they had far less occasion to engage in it. For the thinkers of the late eighteenth and early nineteenth centuries, there was a real need for a mode of definition that could justify the conception of a new and separate science. While their definitions might only imperfectly indicate the actual character of their inquiries, they still had to demonstrate the peculiarity in subject matter or method of investigation that prevented economics from being subsumed under some wider, extant discipline.

Classical writers could express themselves about the nature of the economic in two distinct ways. They could define the subject known as political economy. Or, having defined political economy as the science of wealth, they could proceed to set forth the nature of that wealth with which it was maintained that economics is concerned. Each of these approaches was freely used both before and after Mill’s own elaborate attempt to define political economy.

The Economic Point of View: the Background of the “Methodenstreit”

After 1870, attempts to define the nature of the economic were definitely colored by the intellectual background of the period. In Germany, Austria, and England economists were paying a good deal of attention indeed to the necessity for reconstructing economics “from the ground up.” This necessity was proclaimed by both groups that were in reaction against the hitherto dominant classical economics. Those following Roscher, Hildebrand, and Knies in their revolt against the abstract reasoning of Ricardian-type economics, as well as those who with Menger and Jevons were dissatisfied with the objectivism of the classical economists—all were imbued with the desire to make over the entire discipline. Inevitably this desire was accompanied by a flourishing self-consciousness on the part of economists in regard to the status of their discipline as a science, its relation to kindred branches of learning, and, in general, its objectives and the kind of knowledge it might be expected to furnish. Together with their researches into economic problems proper, the leaders of both new schools of economic thought felt called upon to still both their own misgivings and those of the public at large concerning the nature and significance of a subject whose methods of approach, after a century of study, its own students were branding as unsound.

Although this statement of the disagreement does not, of course, point to any simple parallel disagreement concerning the nature of the economic, it does throw light on the background against which discussions about the character of economic phenomena were carried on in the last quarter of the nineteenth century. During this period we find, especially in the German literature, a concern with the correct characterization of economic phenomena that went far beyond previous investigations. It may safely be said that almost all the numerous criteria that have, during the history of economics, been used to define the economic aspect of affairs were in some way mentioned already in the formidable German literature of these decades. Even some definitions that were clearly discussed only in the twentieth century were at least vaguely envisaged during these years. Dietzel and Neumann in particular demonstrated considerable insight in their work in this area. Under the influence of Menger and his followers, writers of this period devoted careful attention to the scarcity criterion and to the operation of the “economic principle.” On the other hand, economists of the Historical School tended to stress the social character of economic phenomena. Both groups still clung to the idea that wealth stands at the core of economic affairs, but frequently the retention of conventional phraseology merely concealed a far more advanced and sensitive grasp of the real nature of economic phenomena.

In England at this time, despite its own form of the Methodenstreit, far less advance was to be seen in formulations of the scope of the discipline. Jevons had kept his economics closely tied to hedonism, and he was followed in this by Edge worth. Marshall devoted part of his inaugural Cambridge lecture in 1885 to the problem, with interesting results. Several of the methodological rebels were intent on denying economics a separate status apart from sociology. There was even a proposal put forward in the British Association for the Advancement of Science during the late seventies to abolish the very existence of a separate economic section of the association. J. N. Keynes contributed to the judicious resolution of the methodological issues, but did little to advance the conception of the character of the economic point of view. It was not until the appearance of Wicksteed’s brilliant work in this field in 1910 that we find a contribution comparable in exhaustiveness and refinement to several of the German discussions.

Twentieth-Century Economic Points of View

During the twentieth century two distinct trends are visible in the definitions of the economic point of view. On the one hand, a transition from Type A to Type B definitions has been vigorously carried forward. On the other hand, there has been a pronounced movement toward the denial of any distinctly economic point of view whatsoever, and the consequent conviction that all attempts to present such a point of view with clarity must be a waste of time.

The final chapter of this essay traces the further development, in recent decades, of this trend away from the association of economics with specific “ends” or a specific department of human affairs. In this development the work of Robbins has been consistently pursued to what appears to the writer to be the most adequate solution of the problem. The developments described in this final chapter are made up of the contributions of several eminent economists, including Mises and Knight. These writers in no way constitute a “school,” and although in this essay the developments of the final chapter are described as “praxeological” (following Mises’ terminology), it is not to be understood that all the writers cited in that chapter fully subscribe to what is here called the praxeological outlook. It is maintained, however, that the consistent and refined development of the ideas first brought to a focus in the Type B definition constitutes a distinct contribution to the history of the problem. The path-breaking work of Mises in this regard has a significance that, in the writer’s opinion, has not been sufficiently recognized because it has not yet been brought into historical perspective.

The movement from Type A definitions toward Type B definitions and finally to the praxeological position runs, of course, in a direction diametrically opposed to that taken by writers who disparage painstaking definitions of economics altogether. What is common to all these writers is, as was noticed earlier in this chapter, that they deny the existence of any given “pie” that could constitute economics. There is no specifically economic point of view, and economic science does not investigate any uniquely separate group of phenomena, or phenomena in general from any uniquely economic aspect. The consistent development of the Type B definition and of praxeological ideas represents the completest denial of this view. Both these conceptions of economics have been able to focus attention, with a clarity never hitherto attained, on an element in our experience that corresponds to nothing else in our consciousness. This element in our experience conforms precisely to the foundation that is discovered to be rigorously necessary and sufficient for the construction of economic theory as it has developed during the past two centuries.

The body of this essay consists of the study of the many alternative formulations of this economic point of view, which make up the trend culminating in the insights of the final chapters.